You're paying lower bank charges, thanks to Capitec

Charges on transaction accounts have fallen in real (after-inflation) terms over the past several years thanks to fierce competition among the banks, as Absa, First National Bank (FNB), Nedbank and Standard Bank try to claw back market share from Capitec.

According to the 2017 Solidarity Bank Charges Report, released late last week, Absa in particular is offering a compelling alternative to Capitec’s groundbreaking, simple, low-cost Global One account.

Gerhard van Onselen, the economics researcher at the Solidarity Research Institute, says the report shows there is strong competition in the transactional banking space. “[Absa, FNB, Nedbank and Standard Bank] have little room to increase fees at the lower end of the market, and this is owing to the sustained pressure from Capitec’s offer.

“The banks also cannot allow the gap between the bundle accounts, marketed at the middle-income group, and the cheaper accounts to get too big, otherwise they run the risk that clients may shift to the cheaper options, or simply move to competitors,” he says.

Each year, Solidarity produces a report on the charges on transaction accounts based on four different user profiles: consumers who perform 12 transactions a month, 17 transactions a month, 25 transactions a month and 30 transactions a month.

The banks market their transaction accounts to three different income groups. These, according to Solidarity, are: low income (basic banking), middle income (sophisticated banking) and higher middle income (sophisticated banking). The exceptions are Capitec’s Global One account and Old Mutual’s recently launched Money Account.

Solidarity takes into consideration the relatively high interest rate (starting at 5.1%) that Capitec pays on a positive balance, which offsets its charges. Thus, four sets of calculations were done on the Global One account: where the average monthly balance was zero, and where it was R2 000, R5 000 and (when comparing it with the higher-middle-class accounts) R10 000.

Note that the average monthly balance is not the same as the minimum balance. You could have a balance of zero at the end of the month, but your average balance could be R2 000 or more if, for example, you spaced out your payments over the month.

“However, when the interest paid by Capitec is taken into consideration, Capitec is still, but just barely, the cheapest account. With that being said, Absa’s Transact account is now a truly compelling proposition for clients who rarely, if ever, hold more than R2 000 in their account,” Van Onselen says.

The Solidarity report notes: “Absa has made only small changes to its Transact account this year, and it remains the cheapest account overall if measured on fees alone. Although some charges were increased marginally, it generally remains the same competitive offering that existed in 2015 and 2016.”

Middle income

The flagship accounts of Absa, FNB, Nedbank and Standard Bank are marketed at middle-income clients with sophisticated banking needs. They can take the form of a bundle option, on which you pay a monthly fee for a set “bundle” of transactions, or a pay-as-you-transact option.

The report shows that the cost of a mid-level bundle account has remained about R100 a month for several years now. This represents a real decrease in the price of these accounts.

“While an exact comparison of accounts over time is difficult owing to changes in the names and structures of accounts, comparisons of similar accounts suggest there have been large decreases in the real cost of transactional banking almost across the board,” Van Onselen says.

According to the survey, Standard Bank’s Elite Plus account, which came top last year, is no longer the cheapest option among the bundle accounts. The monthly fee is R105.50.

“The Elite Plus account is now surpassed by Nedbank’s Savvy Plus (R100 a month) and Absa’s Gold Value Bundle (R103). After doing away with withdrawal fees for cash at retailers, the Savvy Plus account is competitive at this level this year,” Van Onselen says.

Consumers in the middle-class income category who require “no-frills” pay-as-you-transact banking may consider Capitec (R68.69 a month on a R2 000 average balance for 25 transactions a month) and the relatively new offering from Old Mutual (R90.70), Van Onselen says.

“However, when you take the interest on positive balances and existing ATM and branch infrastructure into account, Capitec is the stronger proposition in this space.”

Apart from Capitec and Old Mutual, pay-as-you-transact options on middle-income accounts have become largely uneconomical: FNB discontinued the pay-as-you-transact option on its Gold Cheque account in 2015 and Absa followed suit on its Gold account last year.

The only traditional bank still offering a pay-as-you-transact option in this category is Standard, whose Elite account costs a whopping R182.60 a month if you perform 25 transactions a month.

“Costs are, however, not the only reason clients consider these more expensive accounts, which usually include additional benefits, and such benefits require individual consideration,” Van Onselen says.

To read the complete report, which includes a table showing the costs for all accounts across the four user profiles, go here.

OTHER FINDINGS

• The fees for withdrawing cash from the ATM of a bank other than your own ranges widely among the banks. On a withdrawal of R1 000, you will pay R8.50 if you’re a Capitec client, but R26.50 if you bank at FNB.

• FNB also charges the most for cash deposits at a branch. On a deposit of R1 000 you will pay R79 at FNB, but only R18 if you’re a Nedbank PAYU account-holder. To be fair to FNB, you will pay only R9 for a R1 000 cash deposit at an ATM, but R18 on a Nedbank PAYU and R25 on a Nedbank Savvy account.

• The penalties for rejected debit orders also vary widely. There’s no penalty if you’re an Absa Transact customer, and Capitec charges a nominal R5. But on the higher-end accounts you will pay R115 at Standard Bank, and R60 per event, increasing to R150 for the fourth event in a 12-month cycle if you have a Nedbank Savvy account.